Mortgage loans in tax returns for the 2016 assessment year: the Regions are growing further apart (fiscally speaking)

Last year was the first time that individuals and tax advisers had to go through the exercise of evaluating, for each home loan, whether it was eligible for regional or federal tax benefits. This exercise has to be repeated this year, and now the regional differences are starting to be felt, because all of the Regions have tinkered around with the tax benefits for home loans.

1. Regional tax benefits for the "primary residence" – of what Region are you a "resident"?

Everyone who files a personal income tax return is considered to be a "resident" of Belgium. Since the sixth State Reform, every resident is also located in a Region. Basically, for the personal income tax return this is the Region in which you were living on 1 January of the assessment year.

For example: In 2015, you lived for the whole year in your primary residence in Flanders, but on 28 December 2015 you started living in a rented apartment in Liège and made that your residence for tax purposes, which means that on 1 January 2016 you were a resident of Wallonia. Accordingly, the Walloon tax benefits apply to your home loan for 2015.

As you can see, the location of the home does not always correspond to the Region granting the tax benefits. So moving from one Region to another can result in fiscal surprises (both positive and negative)!

2. Tax benefits for the "primary residence" – by Region

The Region of which you are a resident determines which tax benefits you can claim for your home loan for your "primary residence". Because the Regions have used their authority to tinker with tax benefits for home loans, you will notice that there are certain differences between the Regions. A significant new feature with regard to the house bonus (one that applies for all Regions and also at the federal level) is that, starting in the 2016 assessment year, a distinction will be made between loans taken out from 2006 onwards and loans obtained before 2006. The house bonus primarily consists of three elements: a base amount, an extra amount for the first 10 years, and another extra amount for people who, on 1 January of the year after taking out the loan, have three dependent children. For loans taken out prior to 2006, the extra amount for the first 10 years of the loan no longer applies. In 2015, these loans were in their eleventh year, so they only attracted the base amount (and the amount for three dependent children, where applicable).

Below, we summarise the tax benefits for each Region in table form, and give you the codes to use in your return.

Flemish Region

In the Flemish Region the elements of the various tax benefits are no longer index-adjusted, so the maximum amounts are the same as last year.

A. House bonus

For loans taken out from 2015 onwards, the amount of the house bonus is drastically reduced. The base amount is only €1,520 instead of €2,280. You are still entitled to an extra amount for the first ten years.

B. Home-building savings and additional interest

This mostly concerns tax benefits under the old system (for loans taken out on or before 31/12/2004). Under certain conditions new loans, taken out from 2005 onwards, can also attract these tax benefits. However, in Flanders this option is no longer available for loans taken out in or after 2015.

C. Long-term savings and ordinary interest

In the Flemish Region, there is still a tax rebate for the ordinary interest on loans taken out in 2015. So in the tax return loans taken out before 2015 are treated separately from loans taken out from 2015 onwards, and the latter section applies only to residents of the Flemish Region.

Brussels-Capital Region

In the Brussels-Capital Region, the system of index-adjustments was not stopped, so the maximum amounts of the tax benefits for home loans have gone up by €10. Loans taken out from 2015 onwards attract a tax rebate of 45%, which is more favourable than in the Flemish and Walloon Regions (where they’ve opted for a tax rebate of 40%).  

A. House bonus

B. Home-building savings and additional interest

Unlike in the Flemish Region, under certain circumstances people in the Brussels-Capital Region can still opt to apply the "old system" to loans taken out in 2015. New codes to be used in tax returns have been supplied for these loans.

C. Long-term savings and ordinary interest

Walloon Region

The system of index-adjustments was not stopped in the Walloon Region either, so the maximum amounts of the tax benefits for home loans have been increased by €10 there too.    

A. House bonus

B. Home-building savings and additional interest deduction

In the Walloon Region too, it is still possible to opt to receive tax benefits under the "old system" for loans taken out in 2015 (provided certain conditions are met).

C. Long-term savings and ordinary interest

3. Tax benefits for "secondary" residences

If you have a home loan for a residence which is not your primary residence, you have to use the federal tax benefits for home loans. The amounts of the federal benefits for home loans have not been index-adjusted since the 2014 assessment year. Under the federal system, the house bonus, home-building savings and additional interest tax benefits can only be applied for homes which, on 31 December of the year in which the loan was taken out, were classified as a "primary residence", and a distinction is made between loans taken out prior to 2014 and those taken out since 2014. The codes for the federal tax benefits are the same as in previous years.

4. A brief look ahead

The Regions have been busy; for the 2016 income year there are still more drastic changes on the way. In Flanders, an integrated house bonus system has been introduced, under which the bonus will also apply to secondary residences for loans taken out from 2016 onwards. The Flemish tax rebate for long-term savings and the tax rebate for ordinary interest are also abolished for loans taken out from 2016 onwards.

The Walloon government issued a press release announcing its intention to comprehensively reform the tax system for mortgage loans for primary residences, to take effect from the 2017 assessment year. This means the Walloon house bonus will be replaced with a new "Housing Voucher" (Chèque Habitat), with a narrower scope. For loans taken out before 2016, nothing will change. The texts relating to this "Housing Voucher" have not yet been finalised.

5. Conclusion

Working out which codes to use wasn't child’s play last year, but this year the complexity has only increased. Particularly for loans taken out in 2015, you first have to check which Region you were a resident of on 1 January 2016. Only then can you consider which tax benefits these loans might attract and which codes you should use when completing your tax return.

Author: Karolien Vanmeerhaeghe                                  

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